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Corporate Governance Scores Increasing Expectations

Corporate Governance Scores Increasing Expectations

Based on the Indian Corporate Governance Scorecard Framework Developed by IFC-BSE-IiAS

To read our report click here

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Voting Data and Outcomes for the NIFTY 500 Companies for 2022

Voting Data and Outcomes for the NIFTY 500 Companies for 2022

1 June 2023: IiAS today published its annual compilation of ‘Voting Data and Outcomes for the NIFTY 500 Companies’ for 2022.

For the year under review, promoters held 50.45% in NIFTY500, institutional investors owned 28. 42% percent, with others holding the balance 21.14%.

The promoters voted 85.22% of their shares, much lower than 92.67% of the shares voted during 2021. While it is expected that promoters will vote all their shares, it is not so: there are resolutions in which promoters as interested or related parties do not get to vote. Of the votes cast by promoters, 99.85% were in favour of the resolutions proposed, while 0.15% were against.

Institutional investors polled 83.57% of the shares they own, marginally more than the 82.26% voted the previous year. Of the votes cast by institutional investors, 93.68% were in favour of the proposed resolutions, while 6.31% were against.

The ‘others’ an amalgam of various types of investors, hold not just the lowest percentage of equity but polled 29.01% their shares, which while higher than the 26.31% voted the previous year, remains very low. As with promoters and institutional investors, 99.12% (99.09%) of their votes were in favour of the proposed resolutions, while 0.88% (0.91%) were against.

In aggregate, of the shares held, 72.87% were voted on in 2022, implying promoters accounted for 59.0% of the total shares voted, institutions 32.6% and others just 8.4%. Aggregating the votes cast 97.8% of the votes are FOR and just 2.2% AGAINST.

The data shows that the likelihood for ordinary resolutions being approved is extremely high. And though special resolutions and those requiring majority of minority votes give the minority investors an edge, the default outcome remains that such resolutions will get approved. Consequently, of the 4991 resolutions put to vote, 24 were defeated, with a majority being approved.

In contrast, institutional shareholder dissent across resolutions is increasing, reflecting their changed approach: where previously the focus was on financial numbers, many now focus on compensation, capital allocation and transparency.

Way forward IiAS’ analysis points to the need for regulators to re-examine recategorizing some resolutions from ordinary to special.

With regard to disclosures, , India is ahead of other countries. It is the only geography that requires institutional investors to disclose their voting rationale. We can further build on this by mandating that the voting rationale be made mandatory for a few more categories of investors including corporates, trusts and private equity.

The voting disclosure itself needs to be more granular. Currently all institutions are clubbed; disclosures across a various sub-category – mutual funds, insurance companies, pension funds, alternate investment funds and foreign institutional investors, corporate bodies, and retail.

Finally, there is a need to step up the periodicity of the voting disclosure by funds. These are currently quarterly and can be within a week of the vote being cast. A faster dissemination will provide a quicker feedback-loop between companies and investors and increase the engagement between the participants.

The NIFTY 500 companies:

  • Held 994 shareholder meetings during the year.
  • This included 503 annual general meetings (AGMs), 40 extraordinary general meetings (EGMs), 417 votes through postal ballot (PBs), and 34 meetings convened under the aegis of the national company law tribunal (NCMs).
  • Proposed 4997 resolutions. Six resolutions were withdrawn or otherwise not put to shareholders to vote, putting the final count at 4991.
  • 24 of these resolutions were defeated and 4967 were approved.
  • Five resolution categories accounted for about 70.74% of the resolutions. These are director appointment 1627 or 32.5% of the resolutions, adoption of accounts (604, 12.1%) remuneration and compensation (597, 11.9%), dividend distribution (391, 7.8%) and auditor appointment (316, 6.3%).

Voting by institutional investors

  • Median votes cast were 82.11% (82.68%)
  • Percentage of shares voted was 83.57% (82.26%)
  • Voted 93.68% (94.38%) of their shares FOR and 6.31% (5.62%) AGAINST
  • Voted their entire holding on 0.8% (0.5%) of the resolutions.
  • Did not vote a single share on 0.7% (0.7%) of the resolutions.
  • Voted their entire shareholding i.e. 100% FOR on 36.5% (40.3%) of the resolutions.

Investor dissent:

  • 14.5% (13.3%) of the resolutions saw ≥25% institutional shares voted AGAINST.
  • 5.3% (5.0%) of the resolutions saw 50% institutional shares voted AGAINST.
  • 1.4% (1.7%) of the resolutions saw 75% institutional shares voted AGAINST.
  • 0.1% (nil) of the resolutions saw 100% institutional shares voted AGAINST.

Click here to read the report

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Institutional Eye

Indian Corporate Governance: A five-year progress report

Indian Corporate Governance: A five-year progress report

Each year for eight years now, we have been scoring the BSE100 companies on their governance. We published the ‘scores’ based on data for FY23 earlier this month. Using this data, it is time to look back at corporate India’s governance practices over 5-years.

First, is it possible to measure something as fuzzy as governance? The scorecard approach attempts to do just this, by first breaking down the various elements and then assigning it a score. For example, while looking at a firm’s dividend distribution policy, you first look at whether the company has a policy or not. If so, you look at elements of the policy, for instance, disclosure of a dividend payout ratio or a range. And finally, you look at evidence of adherence to policy or explanations for non-compliance.

As these elements span across parameters like transparency, board composition, risk management etc., assigning a number can be challenging as there is an element of subjectivity involved. Using well established frameworks, helps minimize such subjectivity, but does not eliminate it altogether.

We use the G20-OECD Corporate Governance Principles and scored the BSE100 companies focusing on four of the six pillars. These are -

  • Rights and equitable treatment of shareholders
  • Role of stakeholders
  • Disclosures and transparency
  • Responsibilities of the board

The remaining two pillars - Ensuring the basis of an effective corporate governance framework and Developments relating to institutional investors, stock markets, and other intermediaries, are not in the company’s control, so are not relevant to this analysis.

Read our blog here.

Its show and tell time for corporate India

Its show and tell time for corporate India

The recent circular from the Security and Exchange Board of India’s (SEBI) streamlining and enhancing disclosures of material events is aimed at adding ‘more’ transparency and improving the timelines of corporate disclosures. Furthermore, the disclosure requirements have been extended to include shareholder agreements including family settlements “to the extent that (these) impacts management and control of the listed entity.” This notification also expects that with effect from 1 October 2023, India’s top 100 listed entities will confirm, deny, or clarify market rumours on the stock exchanges.

Till case law is established, the new regulations will be a major point of friction between companies and regulators and aggravate intra promoter rivalries. Till then the best test for boards to apply is whether the disclosure of any event or development will make the company more attractive or less attractive to investors or leave its value unchanged.

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Mint Apr 16 Meet Indian IT Industry's best paid CEO The Economic Times Apr 05 RBI directs banks and finance companies to prioritise governance, adhere to rules Business Standard Apr 02 TO DISCLOSE OR NOT TO DISCLOSE Live Mint Mar 28 When shareholder voting is on, many directors pull their candidature Zee Business Mar 18 ICICI Securities delisting: Proxy advisory firms IiAS and ISS positive on ICICI Securities delisting proposal News Experts Mar 13 Tata Power Secures ‘Leadership’ Position in Corporate Governance Scorecard Assessment, 2023 The Wire Mar 08 Despite Talk of Diversity, Women Still a Minority in Indian Boardrooms Business Today Mar 06 Will 2024 see end of grandfathering of board tenures? IiAS answers Business Standard Mar 06 PSUs score lowest in compliance, corporate governance: IiAS report BNN Mar 06 PSUs Lag in Corporate Governance, All Non-Compliant Firms in BSE100 are Public Entities Live Mint Mar 06 The silent rise of the public sector banker in private bank boards The Economic Times Mar 06 Industrial and manufacturing sector dominates million-dollar CXO club BNN Feb 27 Advisory Firm Urges Against Reappointment of Easy Trip Planners' MD Over Governance Concerns NDTV Feb 27 IiAS Recommends Voting Against Prashant Pitti As MD Of Easy Trip Planners Bloomberg Feb 22 India’s Battle Against Crony Boards Drives a Mega Shakeup Business Standard Feb 09 Regulatory action on Paytm Payments Bank, not app, clarifies RBI Financial Express Jan 22 Zee investors may call EGM to reshuffle board Reuters Jan 22 Sony ends $10 billion merger with India's Zee, setting stage for legal row Live Mint Jan 16 When banker's pay was brought under scrutiny, no one saw this coming The Economic Times Jan 11 Proxy advisor against Aster DM Healthcare's gulf deal Business Standard Jan 10 Voting advisory firm opposes Aster DM Healthcare's sale of Gulf business Business Standard Jan 10 IiAS recommends voting against Adani Green's Rs 9,350 cr preferential issue Business Standard Jan 03 SC judgment gives Sebi final say on securities violations: Law firms MoneyControl Dec 27 Dish TV EGM: Corporate governance experts say shareholders' rejection of 4 directors "long overdue"

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